ETHICS OF CONSUMER PRODUCTION AND MARKETING – Theories and Definitions Tuesday, Dec 2 2008 

How far must manufacturers and their representatives go to make their products and services completely safe?

WHAT Is the relationship between a business and its customers? a contract, or is there more to it than that?

Hos does the fact that companies usually know more about their products than their customers IMPACT their duty to protect customers from injury or harm?

What responsibility do businesses have for customer injuries no one could reasonably have foreseen or prevented?

What about customer’s privacy – what obligations do companies have?

 

MARKET APPROACH TO CONSUMER PROTECTION:

Consumer safely is seen as a good that is most efficiently provided through the mechanism of the free market whereby sellers must respond to consumer demands.

PROBLEMS WITH THE ASSUMPTION OF FULL INFORMATION:

 

  • Many products are too complex for consumers to understand
  • Markets cannot provide consumers with product information.

 

FREE RIDERS:

individuals who enjoy the benefits of a good without paying their share of its costs.

RATIONAL UTILITY MAXIMIZER:

A person who has a well defined and consistent set of preferences, and who knows how personal choices will affect those preferences.

PROBLEMS WITH THE ASSUMPTION OF RATIONAL UTILITY MAXIMIZATION:

 

  • Few people are good at estimating probabilities.
  • People are irrational and inconsistent when weighing choices.
  • Many consumer markets are monopolies or oligopolies.

 

CONTRACT VIEW OF THE FIRM’S DUTIES TO ITS CUSTOMERS:

The view that the relationship between a business firm and its customers is relationship, and the firm’s moral duties to the customer are those created by this contractual relationships.

RELIABILITY:

The probability that a product will function as the consumer is led to expect that it will function.

SERVICE LIFE:

The period of time during which the product will function as effectively as the consumer is to led to expect it to function.

MAINTAINABILITY:

The ease with which the product can be repaired and kept in operating condition.

PRODUCT SAFETY:

The degree of risk associated with using a product.

MORAL DUTIES TO CONSUMERS UNDER CONTRACTUAL THEORY:

 

  • Duty to comply with express and implied claims of reliability, service life, maintainability, and safety.
  • Duty of disclosure
  • Duty not to misrepresent
  • Duty not to coerce

 

DUE CARE THEORY OF THE MANUFACTURER’S DUTIES TO CONSUMERS:

The view that because manufacturers are in more advantaged position, they have a duty to take special care to ensure that consumers’ interests are not harmed by the products that they offer them.

CAVEAT EMPTOR:

Let the buyer take care.

CAVEAT VENDOR:

Let the seller take care.

 

AREAS OF PRODUCER RESPONSIBILITY ACCORDING TO DUE CARE THEORY:

 

  • Design
  • Production
  • Information

 

SOCIAL COSTS VIEW OF THE MANUFACTURER’S DUTIES TO CONSUMERS:

The view that a manufacturer should pay the costs of any injuries sustained through any defects in the product, even when the manufacturer exercised all due care in the design and manufacture of the product and has taken all reasonable precautions to warn users of every foreseen danger.

 

  • Manufacturer should pay the costs of all injuries caused by defect in a product even if exercised due care.
  • Argues that injuries are external costs that should be internalized.

 

STRICT LIABILITY:

A legal doctrine that holds that manufacturers must bear the costs of injuries resulting from product defects regardless of fault.

CRITICISMS OF THE SOCIAL COST VIEW:

 

  • Unfair to manufacturers since it forces them to compensate unforeseeable injuries.
  • Assumption that adherence to the social cost view will prevent accidents is false.
  • Leads to successful consumer lawsuits in cases where manufacturers took all due care.

 

COMMERCIAL ADVERTISING:

Communication between a seller and potential buyers that is publicly addressed to a mass audience and is intended to induce members of this audience to buy the seller’s products.

 

  • Public communication aimed at mass audience
  • Intended to induce members of its audience to buy the Sellers’s products
  • Succeeds by creating a desire for the seller’s product or a belief that a product will satisfy a pre existing desire.

 

PRODUCTION COSTS:

The costs of the resources consumed in producing or improving a product.

SELLING COSTS:

The additional costs of resources that do not go into changing the product, but are invested instead in getting people to buy the product.

DECEPTIVE ADVERTISING:

 

  • Is a function of the author’s intent to make the audience believe what is known to be false.
  • OR a function of The media’s communication of the false message.
  • OR a function of The audience’s vulnerability to deception.

 

RIGHT TO PRIVACY:

The right of persons to determine what, to whom, and how much information about themselves will be disclosed to other parties.

PSYCHOLOGICAL PRIVACY:

Privacy with respect to a person’s inner life.

PHYSICAL PRIVACY:

Privacy with respect to a person’s physical activities.

IMPORTANCE OF PRIVACY:

 

  • Protects individuals from interference, shame, embarrassment, hurting loved ones, self-incrimination
  • Enables the development of personal relationships,professional relationships, distinct social roles and self determination.
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BUSINESS & ENVIRONMENT Tuesday, Dec 2 2008 

The process of producing goods forces businesses to engage in exchanges and interactions with 2 main environments ie. the customer environment and the natural environment.

It is from the natural environment that business ultimately draws the raw materials that it transforms into it the finished products, which are then promoted and sold to the customers. 

Thus, the natural environment provides the raw material input of business, whereas the consumer environment absorbs it finished output.

POLLUTION:

The undesirable and unintended contamination of the environment by the manufacture or use of commodities.

RESOURCE DEPLETION:

The consumption of finite or scarce resources.

GLOBAL WARMING:

The increase in temperatures around the globe due to rising levels of greenhouse gases.

GREENHOUSE GASES:

Carbon dioxide, nitrous oxide, methane and chlorofluorocarbons – gases that absorb and hold heat from the sun,preventing it from escaping back into space, much like a greenhouse absorbs and holds the sun’s heat.

OZONE DEPLETION:

The gradual breakdown of ozone gas in the stratosphere above us caused by the release of chlorofluorocarbons (CFCs) in to the air.

ACID RAIN:

Acid rain occurs when sulfur oxides and nitrogen oxides are combined with water vapour in clouds to form nitric acid and sulfuric acid.

These acids are then carried down in rainfall.

PHOTOCHEMICAL SMOG:

A complex mixture of gases and particles manufactured by sunlight out of the raw materials- nitrogen oxides and hydrocarbons – discharged to the atmosphere chiefly by automobiles.

MAJOR TYPES OF AIR POLLUTION:

  • Global Warming Gases
  • Ozone depleting Gases.
  • Acid Rain
  • Airbone Toxics
  • Air Quality

ORGANIC WASTES:

Largely untreated human wastes,sewage,and industrial wastes from processing various food products,from the pulp and paper industry and from animal feedlots. 

ECOLOGICAL SYSTEM:

An interrelated and interdependent set or organisms and environments.

ECOLOGICAL ETHICS:

The view that nonhuman parts of the environment deserve to be preserved for their own sake, regardless of whether this benefits human beings.

PRIVATE COST:

The cost an individual or company must pay out of its own pocket to engage in a particular economic activity.

SOCIAL COST:

The private internal costs and wider external costs of engaging in a particular economic activity.

 

KINDS OF ETHICAL APPROACHES TO ENVIRONMENTAL PROTECTION:

  • Ecological approach: non humans have intrinsic value.
  • Environmental Rights Approach: Humans have a right to a livable environment.
  • Market Approach: External costs violate utility, rights and justice.

INTERNALIZATION OF THE COSTS OF POLLUTION:

Absorption of costs by the producer, who takes them into account when determining the price of goods.

ENVIRONMENTAL INJUSTICE:

The bearing of external costs of pollution largely by those who do not enjoy a net benefit from the activity that produces the pollution.

SOCIAL AUDIT:

A report of the social costs and social benefits of the firm’s activities.

CONSERVING:

The saving or rationing of neutral resources for later uses.

Arguments against the Existence of the Rights of Future Generations:

  • Future generations do not now exist and may never exist.
  • The potential argument that the present must be sacrificed fot he future.
  • Our ignorance of the interests of future generations.

CONSERVATION BASED ON JUSTICE:

  • Rawls: Leave the world no worse than we found it.
  • Care: Leave our children a world no worse than we received.
  • Attfield: Leave the world as productive as we found it.

ETHICS IN THE MARKET – Theories and Definitions Tuesday, Dec 2 2008 

PERFECT COMPETITION:

A free market in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged.

PURE MONOPOLY:

A market in which a single firm is the only seller in the market and which new sellers are barred from entering.

OLIGOPOLY:

A market shared by a relatively small number of large firms that together can exercise some influence on process.

MARKET:

Any forum in which people come together for the purpose of exchanging ownership of goods or money.

EQUILIBRIUM POINT:

The point at which the amount of goods buyers want to buy exactly equals the amount of goods sellers want to sell, and at which the highest price buyers are willing to pay exactly equals the lowest prices sellers are willing to take.

DEMAND CURVE:

A line on a graph indicating the most that customers would be willing to pay for a unit of some product when they buy different quantities of those products.

SUPPLY CURVE:

A line on a graph indicating the prices producers must charge to cover the average costs to supplying a given amount of a commodity.

PRINCIPLE OF DIMINISHING MARGINAL UTILITY:

Each additional item a person consumes is less satisfying than each of the earlier items the person consumed.

PRINCIPLE OF INCREASING MARGINAL COSTS:

After a certain point, each additional item a seller produces costs more to produce than earlier items.

POINT OF EQUILIBRIUM:

The point at which the supply and demand curves meet, so amount buyers want to buy equals amount suppliers want to sell and price buyers are willing to pay equals price sellers are willing to take.

Perfectly Competitive Free Markets are characterized by the following 7 features:

  1. There are numerous buyers and sellers, none of whom has a substantial share of the market.
  2. All buyers and sellers can freely and immediately enter or leave the market.
  3. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of prices, quantities, and quality of all goods being bought and sold.
  4. The goods being sold in the market are so similar to each other that no one cares from which each buys or sells.
  5. The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties.
  6. All buyers and sellers are utility maximizers. Each tries to get as much as possible for as little as possible.
  7. No external parties(such as government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market.

MORAL OUTCOMES OF PERFECTLY COMPETITIVE MARKETS:

  • Achieve a certain kind of justice.
  • Satisfy a certain version of utilitarianism.
  • Respect certain kinds of moral rights.

MONOPOLY MARKET CHARACTERISTICS:

  • One Seller
  • High Entry Barriers
  • Quantity below Equilibrium
  • Prices above equilibrium and Supply Curve
  • Can extract monopoly profit.

OLIGOPOLISTIC COMPETITION:

IMPERFECTLY COMPETITIVE MARKETS:

Markets that lie somewhere between the two extremes of the perfectly competitive market with innumerable sellers and the pure monopoly market with only one seller.

HIGHLY CONCENTRATED MARKETS:

Oligopoly markets that are determined by a few large firms.

HORIZONTAL MERGER:

The unification of two or more companies that were formerly competing in the same line of Business.

PRICE FIXING:

An agreement between firms to set their prices at artificially high levels.

MANIPULATION OF SUPPLY:

When firms in an oligopoly industry agree to limit their production so that prices rise to levels higher than those that would result from free competition.

EXCLUSIVE DEALING ARRANGEMENTS:

When a firm sells to a retailer on condition that the retailer will not purchase any products from other companies and/or will not sell outside of a certain geographical area.

TYING ARRANGEMENTS:

When a firm sells a buyer a certain good only on condition that the buyer agrees to purchase certain other goods from the firm.

RETAIL PRICE MAINTENANCE AGREEMENTS:

A manufacturer sells to retailers only on condition that they agree to charge the same set retail prices for its goods.

PRICE DISCRIMINATION:

To charge different prices to different buyers for identical goods or services.

UNETHICAL PRACTICES IN OLIGOPOLY INDUSTRIES:

  • Price – Fixing
  • Manipulation of supply
  • Exclusive dealing arrangements
  • Tying Arrangements
  • Retail Price Maintenance Agreements
  • Price Discrimination

PRICE LEADER:

  • The firm recognized as the industry leader in oligopoly industries for the purpose of setting prices based on levels announced by that.

TRUST:

An alliance of previously competitive oligopolists formed to take advantages of monopoly powers.

MAIN VIEWS OF OLIGOPOLY POWER:

  • Do-Nothing View
  • Anti trust View
  • Regulation View